Permanent and Transitory Earnings, Accounting Recording Lag, and the Earnings Coefficient

Peter Easton, Pervin Shroff and Gary Taylor
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Peter Easton: The Ohio State University
Pervin Shroff: University of Minnesota
Gary Taylor: University of Alabama

Review of Accounting Studies, 2000, vol. 5, issue 4, No 1, 300 pages

Abstract: Abstract In this paper, (1) wedefine precisely the terms permanent and transitory earnings;(2) we delineate the effects of the degree of permanence andof accounting recording lag on estimates of the slope coefficientfrom a returns-earnings regression and (3) we examine the relationbetween the estimates of the earnings coefficient and observablevariables that may indicate (i) the extent to which earningsare more or less permanent, and (ii) the extent to which valuerelevant events are recorded in accounting earnings in a timelyfashion. Our main point is that attributing differences in thereturns-earnings relation to one of these effects without controllingfor the other may lead to erroneous conclusions.

Keywords: permanent earnings; transitory earnings; recording lag; earnings coefficient and value relevance (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1026589405910

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